When planning for retirement, it’s essential to consider various strategies to maximise your superannuation benefits. One effective approach is making non-concessional contributions.
These contributions are made from your after-tax income and do not provide immediate tax benefits. However, they offer advantages such as tax-effective investment growth within your super fund and potential tax-free withdrawals after age 60.
So, what are non-concessional contributions and what are their benefits for your retirement plan? In this article, we’ll explain what are non-concessional contributions and how they can help you increase your retirement savings.
What Are Non-Concessional Contributions?
When you add money to your superannuation fund, there are two main ways to do it:
- Concessional contributions: This is money you put into your super before the government takes taxes out of your paycheck. It gets taxed lower when it goes into your super fund.
- Non-concessional contributions: This is money you add to your super fund after taxes have already been taken out of your paycheck. You don’t get any extra tax benefits right away for doing this.
Here’s a simple explanation of what is a non-concessional contribution: it’s the money you add to your retirement savings account after you’ve already paid taxes on it. Unlike concessional contributions, which are added before taxes and taxed at a lower rate, non-concessional contributions don’t give you any immediate tax benefits.
Since the money you contribute has already been taxed, it enters your retirement savings without incurring additional tax liabilities as long as they remain within the cap limits set by the Australian Taxation Office (ATO).
From 1 July 2024, the non-concessional contributions cap (so, the amount of money you can add to your super fund without extra taxes) is $120,000. However, there may be some specific rules for non-concessional contributions that may apply to you. You can read the detailed and updated information on the official ATO website.
What Is the Benefit of Non-Concessional Super Contributions?
Non-concessional contributions offer several unique advantages for your retirement savings. Here are the main benefits of taking advantage of them.
Tax-free investment earnings
Earnings on non-concessional contributions within your super fund are taxed at 15%, lower than most individuals’ marginal tax rates. In retirement, these earnings and withdrawals are typically tax-free if taken after age 60.
Increased retirement savings
Non-concessional contributions allow you to boost your superannuation balance significantly. This benefits individuals who have reached their concessional cap but still have additional cash flow to contribute toward retirement savings.
Spouse contributions
You can use non-concessional contributions to add to a spouse’s super fund, potentially qualifying for a tax offset. This is a strategic way to balance retirement savings between partners, especially if one spouse’s balance is lower due to child-rearing or other time out of work.
Future estate planning
These contributions can be a tax-effective way to pass wealth to beneficiaries. Superannuation benefits paid to dependents such as spouses or children under 18 are generally tax-free.
Control over your retirement
Non-concessional contributions offer greater control over your retirement planning, allowing for more precise financial strategies tailored to your personal circumstances and future goals.
Withdrawal Options for Non-Concessional Contributions
You might be asking yourself, “Can I withdraw non-concessional contributions?” The answer is yes. You can withdraw non-concessional contributions from your superannuation fund, but it’s subject to certain conditions.
Generally, these withdrawals are tax-free since the contributions were made with after-tax income. However, you must meet specific conditions set by the Australian government to access these funds.
These conditions typically include reaching the preservation age (55 to 60, depending on your birth year) and retiring or reaching age 65. In some cases, such as severe financial hardship or terminal illness, you may be able to access your superannuation earlier.
It’s advisable to consult with Lifelong Wealth financial advisers in Brisbane to understand your options and the best strategy for withdrawing your super funds.
Tax Implications and Claims for Non-Concessional Contributions
Another question you might be asking is, “Can I claim non-concessional contributions?” Unfortunately, the answer is negative. Non-concessional contributions are made from your after-tax income, so you’ve already paid income tax on this amount. Therefore, there is no additional tax benefit to claim.
So, are non-concessional contributions tax deductible? The answer is no. Since these contributions are funded with income that has already been taxed, they do not qualify for tax deductions when contributed to your super fund.
The main advantage is that these contributions can grow within the superannuation environment, where investment earnings are taxed at a lower rate of 15%, and withdrawals can be tax-free after age 60.
For tailored advice on maximising your super contributions and understanding the tax implications, consult the Lifelong Wealth superannuation consultants. They can provide personalised strategies to enhance your retirement savings effectively.
Seek Financial Advice in Brisbane
Non-concessional contributions can significantly boost your retirement savings. These contributions offer tax advantages, increase your retirement fund and give you more control over your financial future.
For residents in Brisbane and North Brisbane, seeking advice from Lifelong Wealth experts can help you make the most of non-concessional contributions. Consulting a Lifelong Wealth adviser can help you navigate the superannuation system, improve your tax position and achieve your retirement goals, whether you want to maximise your super contributions or need comprehensive financial planning.
If you’re ready to grow your superannuation or need guidance, contact Lifelong Wealth North Brisbane at 3188 5140 or visit our website to book an appointment.
